How Does Medicare Part D Work – Understanding how your Part D plan works will help you get the best rates on your prescription medications. When you choose a Part D plan, you’ll need to know if your current medications are in the drug formulary, which pharmacies are preferred, and how your coverage phases will impact your copays.
What Is Medicare Part D?
Medicare Part D plans are how all Medicare beneficiaries can get prescription drug coverage. They are provided by private insurance companies who contract with Medicare. All plans must include a minimum number of medications, which we’ll list in the next section. Plan availability is based on state counties and zip codes. Most counties have at least ten plans to choose from, but some have even more.
You’ll choose a Part D plan based on your current medications. This is the case if you purchase a stand-alone drug plan or if you have one included as part of your Medicare Advantage plan. (If your Medicare Advantage plan includes drug coverage, you won’t need to purchase a separate Part D policy.)
Regardless of how you purchase Part D, the plans all work the same way. Each one includes a drug formulary, a deductible, coinsurance costs or copays, and pharmacy networks.
What Is a Drug Formulary?
A drug formulary is the first thing you’ll want to consult when looking at Part D plans. The formulary lists all medications that are covered by the plan, how they’re categorized, and how much you’ll pay for each one when you refill them.
As we mentioned earlier, every Part D plan has a minimum set of requirements dictated by the Centers for Medicare and Medicaid Services (CMS). Every plan must include coverage for at least one medication in the following categories:
- Anticonvulsants
- Antidepressants
- Antineoplastics
- Antipsychotics
- Antiretrovirals
- Immunosuppressants
Drug formularies generally also cover vaccines if they aren’t already included in Medicare Part B coverage. For instance, the shingles vaccine isn’t covered by Part B but might be included in your Part D plan.
Over-the-counter (OTC) medications are not included in Part D plans. The same goes for cosmetic medications. Examples of these include:
- Hair growth and regeneration
- Weight loss or weight gain
- Vitamins and minerals
- Cough and cold medications
- Fertility treatment
- Erectile dysfunction
The second portion of the formulary is the drug tiers. Each medication is categorized into a tier based on the price. Your coinsurance or copay amount depends on which tier that prescription falls into – the lower the tier, the lower the cost for you.
- Tier 1: Preferred Generic
- Tier 2: Generic
- Tier 3: Preferred Brand Name
- Tier 4: Non-Preferred
- Tier 5: Specialty
What Are the Part D Coverage Phases?
Every Part D plan has four coverage phases. You may not enter all phases during the year as it depends on how much you spend on medications.
The Deductible
The standard deductible is set by CMS each year. In 2022, the standard deductible is $480. Insurance companies can have lower deductibles, but never more than the standard. Like other deductibles in insurance, you’ll need to meet the deductible before coverage begins. That being said, many carriers waive the deductible for medications in the first couple of tiers.
Initial Coverage
After you’ve met the deductible, you will enter the initial coverage phase, where you will pay the regular coinsurance amount for your prescriptions.
The Coverage Gap
The coverage gap is where things get a little complicated. You might hear this referred to as the Medicare donut hole. Once you and your plan have paid a total of $4,430 towards covered medications, you’ll be in the coverage gap.
During the coverage gap, you pay more for your expenses. You are responsible for up to 25% of the cost of each medication. To get out of the coverage gap, you must spend a total of $7,050. That number does not include any payments from your plan.
Catastrophic Coverage
After you have spent $7,050, catastrophic coverage begins. During that time, you’ll have a smaller coinsurance amount for prescriptions.
Pharmacy Networks
Pharmacy networks are a big part of your Part D coverage. Pharmacies can either be preferred, standard, or out-of-network.
Preferred pharmacies have the best pricing and lowest out-of-pocket costs for members. You can also use your plan at standard pharmacies, but you will pay more for your medications. If you fill them at an out-of-network pharmacy, you will not have any insurance coverage for your medications.
Part D plans also offer mail-order prescriptions in most instances. Enrollees can order medications as a 90-day supply for even more convenience. Sometimes, this method is even cheaper than using a preferred pharmacy.
How Much Do Part D Plans Cost?
We’ve said that Part D premiums depend on which medications you need coverage for. Individuals with very few prescriptions may only pay a few dollars a month for a plan. Of course, you need to consider the copays and coinsurance amounts as part of the cost as well.
If you’d like to learn more about which Part D plans are available in your area, give our office a call. We have licensed insurance agents that can review your medications and find a plan that covers all of them. Call today to speak with a Medicare advisor.
